Bailout Index Soars Past the Market Indexes

The Business Insider’s Clusterstock web site presented a very interesting graph for its Chart of the Day. The graph shows that despite the impressive performance of the broad market indices in the past three months the Nasdaq index tracking all companies that have received more than $1 billion in funding from the Federal Government in the form of bailouts. We have written in the past on this index, the Nasdaq OMX Government Relief Index (QGRI), because it is of great interest to see just how well the “bailouts stocks” are performing. Of course, there are many different ways that you can interpret this information.

Of course one possible explanation is that these companies’ stocks were the most heavily oversold and when the market started to show signs of recovery they had the most to appreciate to get up to their “fair value”. You could also posit that the government’s actions have averted the disastrous worst case scenario, and this is a sign that the recovery has begun. Or the bears will make the case that much of this run in stocks has been speculative in nature and some of the riskiest stocks with serious concerns on their balance sheets are enjoying the most benefit from the rally.

It is still quite early in the grand scheme of things, so we wont try to force the data to fit a conclusion. It is worth noting that although the QGRI has outpaced the S&P 500 recently, the index (which was initiated near the beginning of the year) is actually down more than 12% since inception, while the S&P 500 is up nearly 3% year to date. Perhaps the best explanation for this performance is just that firms that have received bailouts are simply more volatile than the market.

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